A false patent reform narrative – The Innovation Act is not about small businesses

scales-justice-erase-copyLet’s not mince words – the Innovation Act would be a disaster if enacted (for example, see here, here, herehere, here and here). Yet, you continually hear from Members of Congress, Staffers and those giant companies pushing for weaker patents that the goal of the bill is nothing more than to keep small business owners from getting sued for using pieces of equipment that they purchased. You can practically envision the flag waving and hear John Philip Sousa playing in the background. Truth, Justice, and death to patent owners!

Despite the imagery, this tired line about how the Innovation Act is about nothing more than helping small businesses does nothing but misrepresent the contents of the bill. It is also insulting to the countless small businesses and start-ups that rely on the patent system to give them a fighting chance when it comes to competing with large, well funded companies that control everything about the marketplace, from channels of distribution to industry standard setting bodies.

Saying the Innovation Act will do nothing more than save small business doesn’t make it true. Given attention spans in the social media era, saying even something false enough times does seem to be evidence of veracity in and of itself. Perhaps it has always been this way, perhaps the media has never really been particularly inquisitive in nature, maybe it is perfectly legitimate to mislead in the political world. Regardless, no matter how many times the Innovation Act is misrepresented the underlying reality will not change.

If enacted the Innovation Act would be catastrophic, it would dramatically and negatively affect the incentive to invest in innovation. Among other things, the Innovation Act would make investors liable in the event a patent infringement case is lost, which would cause critical early stage funding of innovation to completely dry up. The U.S. innovation based economy would suffer.

Overseas, in China in particular, industry insiders are confused as to why America would flush the patent system down the drain. Foreigners who observe our patent debates smell a rat, convinced that there is something lurking that they don’t understand because the Americans surely would never destroy their own patent system, right?

Not so fast! The forces that want more reform have thoroughly convinced their political supporters that the remedy needed is to make it even more difficult to enforce patents, more difficult to raise capital. To accomplish this the Innovation Act has been cloaked in a misleading narrative. The spurious claim that the Innovation Act is about protecting small business is a perfect example.

If the goal is to insulate small businesses from charges of patent infringement then why not actually write that into the bill so that problem is addressed? Even if the Innovation Act gets passed as written small businesses could still be sued for patent infringement. Indeed, the promise that the Innovation Act is about stopping patent litigation against small businesses is about as truthful as the promise that you could keep your own doctor, or if you like your insurance you can continue to keep it.


If Congress wants to insulate small businesses from patent infringement lawsuits then why don’t they start by defining how small a business must be in order to be exempt form patent infringement litigation? Would it be 50 employees, as Obamacare calls a small business, or maybe 500 employees as the Small Business Administration defines a small business? Congress won’t dare go down that path because to do so would upset too many constituencies, and for what? By keeping patent reform alive as an issue they will be able to continually collect campaign cash from lobbyists and special interest groups desperate to enact their vision for America. Keeping the patent system on the brink is a win-win for Congress. If patent reform stalls they don’t have to have a vote that would upset at least some constituencies who would lose big, and the money train keeps rolling. Complacency is not the solution though, we learned with the America Invents Act (AIA), bad legislation can eventually pass.

The truth is that in order to have any chance to pass the Innovation Act Congress must engage in flag waving and hope no one notices. The small businesses that Congress claims they want to protect are just political pawns in a much larger game of chess. The people funding the effort to enact further patent reform are not small businesses; rather they are Google, Cisco, J.C. Penney, and other giant corporations. The interests important to these giant corporations are driving the push for more reform, not a deep-rooted concern for the plight of American small businesses.

Congress claims they are going to help small businesses (whatever that means and whoever they are), but to do so they have decided they must push forward legislation that will destroy innovative start-ups that create high paying tech jobs. Aren’t those start-ups small businesses too? Aren’t those innovation-based start-ups the ones our leaders say we need to succeed given that they bring good, high paying tech jobs with medical benefits?

To the extent that some small businesses are getting sued for infringing patent rights it is because the giant corporations that sold them the infringing device are engaging in a game of efficient infringement, daring patent owners to sue them, ignoring all attempts to engage in legitimate arms length negotiations, and leaving patent owners without any choice. This very problem that Congress will tell you they are attempting to solve is a problem that they and the Courts specifically and consciously created. If Congress wants to exempt small business owners and individuals from patent infringement lawsuits fine, but you simply can’t do that if you have already so weakened the patent system that the true infringers, those giant corporations, are effectively insulated from liability.

Rather than pushing platitudes one interesting, radical idea would be to actually solve the problem. Patent rights have been eroded for the last ten years, leaving all the power in the hands of those who use the innovations of others. Strengthening patent rights would equalize power between the innovator and the entity that seeks to use the innovation, which would lead to arms length negotiations between the parties and dramatically less litigation.

Why would anyone pursue thousands of small businesses in patent litigation if they can fairly negotiate with several large entities instead? Without a system that incentives arms length negotiations patent owners will be forced to fight in court rather than do business in a boardroom. That is as inefficient as it is stupid. Unfortunately, there isn’t enough money in play in Washington, DC, to achieve sensible patent reform.

Increasingly weakening patent rights obviously hasn’t worked given how large tech companies continue to complain about the same problems year after year. Despite getting whatever they ask from Congress and the Courts the tech companies are incapable of competing in the marketplace without Congress continually tilting the playing field in their favor. Given that it is the innovative small businesses and start-ups that are overwhelmingly responsible for innovation, as patent laws continue to make it more difficult for innovators we can only expect to see less innovation. Call me crazy, but for an innovation based economy that sounds like a disaster waiting to happen.

If Congress really wants to help small businesses and shield them from abusive tactics they should focus on the TROL Act or the STRONG Patents Act (see summary of pending patent bills), which addresses the problem associated with fraudulent and misleading demand letters. That is unlikely to happen, however, because this push for patent reform is not about finding solutions to problems, it is about diminishing the value of patents and eradicating patent infringement lawsuits whether they have merit or not.


Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Join the Discussion

13 comments so far.

  • [Avatar for Edward Heller]
    Edward Heller
    September 25, 2015 12:19 pm

    It struck me that the news about a generic raising his price by 5000% may have the political effect of making it impossible for Congress to do any favors for Pharma.

  • [Avatar for Curious]
    September 25, 2015 10:43 am

    It has also been my experience in practice that small companies are left alone as long as they aren’t making a lot of money.
    People don’t spend $2M for a litigation just to get a $500K judgment that will unlikely be collected.

    Again, while there are some unscrupulous attorneys that try the shotgun effect with demand letters and attempt make money getting small settlements from a large number of alleged infringers, this is a very small and isolated problem that has already been addressed by preexisting mechanisms within the legal system.

  • [Avatar for David]
    September 24, 2015 10:33 pm

    If cert is granted in the Article III issue, branded phrama will be there as amici en masse.

  • [Avatar for Edward Heller]
    Edward Heller
    September 24, 2015 09:03 pm

    Ken, no. We had oral argument on September 11. It typically takes at least 3 months for a decision. The court is aware they have to address the con law issue before they can address any other issue.

  • [Avatar for Ken]
    September 24, 2015 05:41 pm

    Edward – any idea when a decision is expected in the Federal Circuit and/or 4th Circuit cases on the constitutionality issue?

  • [Avatar for Night Writer]
    Night Writer
    September 24, 2015 05:28 pm

    >Does anyone know why?

    The only thing I know for sure is that pharma has been pushing hard to bifurcate the patent system. They tried hard to make that part of the AIA. I suspect that they are going let the system burn mostly down and then push hard for the bifurcation. Just a guess, but the bifurcation push has been going on now for like 6 years that I know of.

  • [Avatar for Edward Heller]
    Edward Heller
    September 24, 2015 04:03 pm

    Ken, Pharma recognizes IPRs are bad for patents — no standing requirement, BRI, no presumption of validity and political body making the call, meaning the political bias might blow with the wind, e.g., today being in favor of drug patents, tomorrow, in favor of generics.

    But it is also clear that IPRs are unconstitutional. Getting rid of IPRs helps every patent owner, not just Pharma.

    The question is, why in the world is Pharma not pursuing this avenue of defense? Does anyone know why?

  • [Avatar for Night Writer]
    Night Writer
    September 24, 2015 09:16 am

    All good comments. Pharma splitting off will be the death knell of CS/EE. Patent values in the US relative to other countries have gone from a 1 to a .2 according to a portfolio analyst.

    Curious, those are really good points. It has also been my experience in practice that small companies are left alone as long as they aren’t making a lot of money.

  • [Avatar for Night Writer]
    Night Writer
    September 24, 2015 09:09 am

    >>However, the effort by pharma to get a special IPR carveout for themselves is horrific

    This will be the end of patents for CS/EE and mechanical people. Without pharma as an alley, there is little hope that patents won’t get watered down more.

    The most compelling evidence I read about the lost value of patents was from a poster on this site that said that she does patent portfolio evaluations with a mix of international patents. She said the US patent went from the gold standard of being a 1 to a value of .2.

  • [Avatar for nat scientist]
    nat scientist
    September 23, 2015 09:25 pm

    All great innovations begin with an individual and a rare mind of the time. No painting hangs in the Louvre with two signatures. The small business the Innovation Act pretends to defend could not possibly be an individual, rather a corporation which can invent nothing new, but build impenetratable moats to protect the kingdoms lifted from individual. Corporate science is corporate law, nothing more to see here. This act rewards no innovation, but protects the establishment from fear of disruption, a recipe for the economic disease of paradigm freeze.

  • [Avatar for Curious]
    September 23, 2015 02:26 pm

    The idea of “small” business facing hordes of patent lawsuits is disingenuous, at best. The cost of taking a patent all the way to a jury (and appealing to the CAFC, which is almost de rigueur for any patent lawsuit of consequence) is many millions of dollars. In order to justify such a suit, one needs to be looking at damages, at the barest minimum, in the low 8 figures. Given the way damages are calculated, the revenue of the “infringing” product/service needs to be around 9 figures (that’s 100+ million).

    There are ways to bring the cost of litigation down, but even then, if the revenue associated with the infringing product/service is less than $10M, then very few litigation attorneys will even bother to look at the case. What this means is that in the vast majority of situations, even if a small business is infringing, they are not generating sufficient revenues to justify a lawsuit.

    While there have been some instances of, IMHO, unscrupulous law firms that have targeted large amounts of small business in the hopes of obtaining small settlements, this is a problem that can be (and has already been) addressed by pre-existing mechanisms within the patent system.

    The primary beneficiary of these patent reforms is the big-corp infringers. It is far cheaper for them to fatten the coffers of their Congressional representatives than it is to actually compensate inventors for the inventions that the big-corps use without permission.

  • [Avatar for Ken]
    September 23, 2015 02:06 pm

    As much as I agree with the sentiment here, I also feel like we need some IPR fixes so badly that, if they can water down the fee shifting enough then it may be worth it to get something like the Senate package – especially if it takes the momentum out of even more extreme measures like this House version.

    However, the effort by pharma to get a special IPR carveout for themselves is horrific – and if Congress goes for it, it will negate any consolation in the bill for entrepreneurs and make a mockery of equal justice under the law.

  • [Avatar for Paul Morinville]
    Paul Morinville
    September 23, 2015 12:45 pm

    Given IPR’s, the abstract definition of an abstract idea,no injunctions, no willful infringement (no treble damages), the cost of litigation for a small entity defending patent rights, and the general environment where inventors are somehow considered a scourge, it is a CEO’s fiduciary duty to their shareholders to steal patented inventions and using their huge money and market power, massively commercialize the invention thus closing the inventor out of the market.

    It is well known the inventor will likely never be able to protect his own property and the company gets it free…